Dividend investors would be wise to focus not just on a stock’s current yield, but also on the long-term growth potential of its dividends. That’s because strong businesses that consistently raise their dividend payouts reward shareholders with a steadily rising income stream that essentially equates to a raise every year. And, well, who doesn’t like a raise?
But there are other reasons to value dividend growth so highly, and they’re well supported by research. For instance, a study by C. Thomas Howard published in Advisor Perspectives found that for every percentage point a stock’s yield rises, its annual return increases by 0.22 percentage points if it’s a large cap, 0.25 if it’s a mid cap, and 0.46 if it’s a small cap. Even better, Howard found that dividend-growing stocks outperformed dividend cutters by 10 percentage points per year from 1973 to 2010 and beat both flat- and no-dividend stocks. And the icing on the cake is that Howard showed that this outperformance came with a third less volatility. Higher returns, less volatility-induced stress, and a steadily growing income stream — what’s not to love?
With that in mind, here are five stocks that have grown their dividends by 20% or more over the last year:
| Company | 1-Year Dividend Growth Rate |
|---|---|
| Cardinal Health, Inc. (NYSE:CAH) | 23.5% |
| QUALCOMM, Inc. (NASDAQ:QCOM) | 22.9% |
| Walgreen Company (NYSE:WAG) | 22.2% |
| BB&T Corporation (NYSE:BBT) | 22.1% |
| Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) | 21% |
Source: S&P Capital IQ.
Cardinal Health, Inc. (NYSE:CAH) provides a range of products and services that improve the safety and productivity of health care. These include a line of medical and surgical products such as surgical drapes, gowns, and gloves, as well as a pharmaceutical distribution business that consolidates drugs from hundreds of manufacturers and delivers them to pharmacies, hospitals, and other care facilities. Cardinal Health, Inc. (NYSE:CAH) currently has a four-star ranking on CAPS and offers investors a 2.4% yield.
QUALCOMM, Inc. (NASDAQ:QCOM) designs, develops, manufactures, and markets digital telecommunications products and services. With a treasure trove of wireless patents and massive scale, QUALCOMM, Inc. (NASDAQ:QCOM) is well-positioned to profit from the surging global growth of mobile devices. CAPS participants have taken notice0 and have awarded QUALCOMM, Inc. (NASDAQ:QCOM) with the highest five-star rating. Its shares are yielding 2.1%.
